Finally, the question arises as to whether an early redemption penalty is deductible from taxable income in the same way as interest on debt. Reminder: Under Swiss tax law, every homeowner is entitled to deduct private debt interest (including mortgage interest) from their taxable income, up to the amount of property income plus CHF 50,000.
In legal terms, however, it would be too simple to just add an early redemption penalty to the debt interest. According to a landmark federal court ruling, the early redemption penalty is only deductible if the customer takes out a new mortgage with the same bank. In other words, there must be a connection with the original mortgage.
It is a different scenario if a customer terminates a mortgage because they wish to sell the house unencumbered (i.e. without a continuing mortgage). According to case law, the early redemption penalty is not deductible from income in this case. However, these costs are considered as an expense by the owner and are therefore included in the investment costs, which, in turn, may be deducted when calculating any taxable gain on the property.